The Money Laundering Control Act of 1986: creating a new federal offense or merely affording federal prosecutors an alternative means of punishing specified unlawful activity?

• Author: Gurule, Jimmy

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1. INTRODUCTION

   A. Legislative History

   Money laundering has been characterized as the "lifeblood" of international narcotics trafficking and traditional organized crime.(1) The Money Laundering Control Act ("MLCA") of 1986 makes it a federal crime to launder proceeds from specified unlawful activity.(2) In enacting federal legislation criminalizing the laundering of illicit proceeds, Congress was responding to the spiraling growth and pervasiveness of money laundering in the United States and the nexus between money laundering and organized crime.(3) Congress's primary intent was to criminalize the "process by which one conceals the existence, illegal source, or illegal application of income, and then disguises that income to make it appear legitimate."(4) The MLCA also aimed to stem the flow of illicit profits back to the criminal enterprise, where profits provide the capital needed to expand criminal activity.(5)

   Additionally, the enormous profits generated by organized crime and the drug cartels have created, out of necessity, a new profession within criminal circles - the professional money launderer.(6) Congress was concerned with the increasing number of professionals, such as lawyers, accountants and bankers, who were either willing to look the other way or to become active participants in the laundering of illicit monies.(7) Congressman Shaw, one of the sponsors of the House Bill, declared, "I am sick and tired of watching people sit back and say, `I am not part of the problem, I am not committing the crime, and, therefore, my hands are clean even though I know the money is dirty I am handling.'"(8) According to one commentator, the MLCA was intended to put a stop to the activities of both those who make, and those who take, dirty money.(9)

   Finally, Congress intended the MLCA to address the so-called "structuring" loophole problem. Prior to the enactment of the MLCA, the Bank Secrecy Act of 1970 ("BSA") required financial institutions to file a Currency Transaction Report ("CTR") with the Department of Treasury for currency transactions in excess of $10,000.(10) To avoid the reporting requirements of the BSA, a single currency transaction would often be structured into multiple transactions of less than $10,000 each. Individuals known as "smurfs" provided the structuring service by engaging in multiple banking transactions of less than $10,000. Since none of the transactions exceeded $10,000, no CTR would be filed.(11) Moreover, courts specifically held that the BSA did not prohibit such "structuring" of transactions to avoid the CTR filing requirement.(12) In short, by enacting the MLCA, "`Congress intended simply to add a new criminal offense to punish activity that was not previously punished criminally.'"(13)

   B. The Statutory Scheme

   The MLCA makes it a crime to knowingly engage in a financial transaction with the proceeds of some form of unlawful activity either with the intent to promote the carrying on of specified unlawful activity (18 U.S.C. [sections]1956(a)(1)(A)(i)), or with the design of concealing the nature, location, source, ownership, or control of the illicit proceeds (18 U.S.C. [sections]1956(a)(1)(B)(i)).(14) Sections 1956(a)(1)(A)(i) and (a)(1)(B)(i) are aimed at different activities, "the first at the practice of plowing back proceeds of `specified unlawful activity' to promote that activity [the "promotion" provision], the second at hiding the proceeds of the activity [the "concealment" provision]."(15) Section 1956(c)(7) defines the term "specified unlawful activity" as encompassing a broad array of statutorily designated felony offenses.(16) As defined in the statute, "specified unlawful activity" includes bank fraud,(17) illegal gambling business and interstate transmission of wagering information,(18) mail fraud,(19) violation of the Hobbs Act,(20) and narcotics trafficking.(21)

   The MLCA also prohibits international money laundering. Section 1956(a)(2) proscribes the transportation or transfer of monetary instruments or funds internationally with the intent to promote the carrying on of specified unlawful activity, or knowing that the monetary instruments or funds represent the proceeds of some form of unlawful activity, with the design to conceal or disguise the nature, location, source, ownership, or control of the illicit proceeds.(22) Section 1956(a)(2) is "`designed to illegalize international money laundering transactions,' and `covers situations in which money is being laundered . . . by transferring it outside the United States.'"(23)

   C. The Statutory Construction Dilemma

   Applying the MLCA has confounded the courts. The federal circuits are divided on two issues: (1) whether the payment for drugs with the proceeds of drug sales violates section 1956(a)(1); and (2) whether the receipt and transportation of drug proceeds by the drug seller (or drug money courier acting on his behalf) violates section 1956(a)(1). Specifically, the circuits have split over whether the payment of monies for drugs or the transportation of drug proceeds constitutes a "financial transaction" as defined under section 1956(c)(3).(24) This division has resulted in the inconsistent application of the money laundering statute, with some circuits affirming a money laundering conviction, and others overturning a factually similar drug-related conviction.

   Equally troublesome is whether payment for illegal drugs with funds derived from drug sales satisfies the additional statutory requirement that the defendant conduct the financial transaction either "with the intent to promote the carrying on of specified unlawful activity," or "knowing that the transaction is designed . . . to conceal or disguise the nature, the location, [or] the source . . . of the proceeds of specified unlawful activity."(25)

   The government has aggravated the problem by its sometimes erratic and incongruous filing of charges under the MLCA. In certain cases, federal prosecutors have charged the defendant with a violation of section 1956(a)(1)(A)(i) (the "promotion" provision) under the theory that the payment of monies for drugs promoted the carrying on of specified unlawful activity.(26) In other factually comparable cases, the government has charged the defendant with a violation of section 1956(a)(1)(B)(i) (the "concealment" provision), maintaining instead that the payment for drugs was intended to conceal the source or nature of the drug proceeds.(27) The courts have consistently held that neither the exchange of money for drugs, nor the transportation of the proceeds of drug sales, by itself, constitutes a violation of section 1956(a)(1)(B)(i).(28) The circuits, however, have inconsistently construed the MLCA in deciding whether this same drug-related activity is proscribed by section 1956(a)(1)(A)(i).

   Two circuits, the Second and Fifth, have concluded that the payment of money for drugs promotes the carrying on of specified unlawful activity, and have sustained money laundering convictions under section 1956(a)(1)(A)(i).(29) In each of these cases, the legal analysis in support of the court's conclusion was minimal, at best. Moreover, the Second Circuit completely misconstrued Congress's intent in enacting the MLCA.(30)

   In contrast, the Fourth Circuit held that the wire transfer of money as payment for drugs received on consignment did not promote unlawful activity within the meaning of the statute.(31) Likewise, the Sixth Circuit, in overturning a money laundering conviction, ruled that the mere transportation of narcotics proceeds does not violate section 1956(a)(1)(A)(i).(32) The Fifth Circuit, on similar facts, reached the opposite conclusion.(33)

   In attempting to resolve the issue of whether exchanging money for drugs, or merely transporting drug proceeds, is proscribed conduct under the MLCA, most courts have engaged in a strict construction of the statutory elements. These courts place their emphasis on whether the defendant engaged in a "financial transaction," and if so, whether the defendant had the intent to promote the carrying on of specified unlawful activity, or had knowledge that the transaction was designed to conceal or disguise the nature or source of the illicit proceeds.

   The Tenth and Fourth Circuits, by contrast, have looked primarily to legislative intent. The Tenth Circuit has posited that Congress intended to criminalize conduct that "follows in time" the underlying crime that generated the funds to be laundered, rather than merely affording an alternative means of punishing the prior "specified unlawful activity."(34) In order to sustain a conviction under section 1956(a)(1)(B)(i), the Tenth Circuit has required more proof than merely that the financial transaction promoted the commission of the underlying offense. The Tenth Circuit would require proof that the defendant took the additional step of attempting to legitimize the proceeds to make it appear that the funds were derived from legal enterprises.(35)

   In construing section 1956(a)(1)(A)(i) (the "promotion" provision), the Fourth Circuit reasoned that Congress intended money laundering activity and the "specified unlawful activity" to be separate offenses which are separately punishable.(36) That court has held that "[t]he statute should not be interpreted to make any drug transaction a money laundering crime."(37)

   The thesis of this article is that in enacting the MLCA, Congress intended to punish criminal activity not otherwise proscribed by federal law. Moreover, the payment for drugs with money derived from illegal narcotics sales, as well as the transportation of drug proceeds, falls within the meaning of the term "financial transaction" as defined in subsections 1956(c)(3) and (4). However, neither the payment for drugs with the proceeds of drug sales, nor the mere transportation of narcotics proceeds, without more, is prohibited conduct under section 1956(a)(1)(B)(i). Finally, mere payment made by...